Some light in gloom over eurozone business: PMI survey

15th December 2011, Comments 0 comments

Eurozone manufacturing and services activity shrank rapidly in the last quarter of the year but the outlook steadied in Germany and France in December, a key survey of trends showed on Thursday.

Private sector activity in both services and manufacturing shrank for the fourth month running in December, marking the worst quarter for two and a half years but the slowdown eased for a second month, the Markit survey of leading indicators showed.

Manufacturing output by eurozone powerhouse Germany rallied after a fall in November as the downturn in France slowed "to a marginal pace."

The purchasing managers' index (PMI), compiled by private organisation Markit, noted also that the rate of decline eased in December.

The survey monitors sentiment among purchasing managers in the private sector and is a closely watched indicator business activity trends.

It is of particular significance now, given the eurozone debt crisis and the uncertainty dragging down business confidence, adding to the risks of recession.

Markit chief economist Chris Williamson commented: "The eurozone suffered its worst quarter for two and a half years in the final three months of 2011, with the PMI data suggesting that the region's economy is likely to have contracted by 0.6 percent."

However "a slight easing in the rate of contraction for the second month in a row in December provides some hope that the rate of decline may weaken further as we move into the new year.

"But another quarter of decline cannot be ruled out."

The survey revealed a widening gap in performance in the eurozone.

Germany probably stagnated in the fourth quarter despite a return to growth in December and France steadied but in other eurozone countries "the rate of contraction remained steep."

Markit said that its composite output index "signalled contraction for the fourth successive month in December," on an preliminary estimate.

But "the index rose from 47.0 in November to 47.9, indicating an easing in the rate of decline for the second month in a row and the smallest fall in output for three months."

Markit said that its research indicated that "manufacturing output fell for the fifth successive month, while services activity dropped for the fourth month. In both cases the rate of decline eased."

But new orders to the manufacturing sector "fell particularly steeply again, dropping at a rate only slightly weaker than November's two-and-a-half-year record."

Markit said that German manufacturing output had signalled "modest growth" which reversed a decline in November.

Excluding Germany and France, eurozone activity fell sharply and only slightly slower than previously.

Markit said that expectations for growth in the services sector in the coming year "remained very weak."

The outlook in Germany was neutral and improved optimism in France was offset by a steep drop in expectations in other countries to the lowest since February 2009.

At Morgan Stanley Research, analysts commented that the PMI indicator came out better than the fall to 46.0 which had been expected.

The composite PMI figure grouping leading indicators for the manufacturing and services sectors rose to 47.9 but the reading "confirms that the sovereign debt crisis has had a negative impact on business activity in the whole eurozone in the fourth quarter of 2011."

Morgan Stanley said that the overall figures suggested that eurozone gross domestic product would contract by 0.3 percent in the last quarter.

"We expect the euro area's economy to enter a mild recession in the fourth quarter of this year and at the start of 2012, with real GDP falling by 0.3 percent and 0.4 percent respectively."

It said this pointed towards further interest rate cuts by the European Central Bank early in 2012 which would take the refinancing rate "to a new historical low of 0.5 percent."

They said they also expected the ECB to begin broad-based quantitative easing by buying government bonds issued by all eurozone countries next year with the aim of boosting liquidity in the system so as to put the economy back on track.

© 2011 AFP

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